ANALYSIS - Japan Needs to buy More Credits to Honour Kyoto
Date: 09-Feb-07
Country: JAPAN
Author: Ikuko Kao
Under Kyoto rich countries like Japan can meet their emissions targets by funding cuts in poor countries, getting carbon credits in return in a market worth well over US$2 billion last year.
To meet its Kyoto targets by 2012 Japan may need to buy as much as seven times more carbon credits than official estimates.
Japan has committed to cut its emissions by 6 percent versus 1990 levels by 2012, and the government has said it will meet less than a third of that by funding emissions reductions in poor countries, getting so-called carbon credits in return.
"That is about 100 million tonnes," an official with the ministry of environment told Reuters. He declined to specify the volume it had purchased so far.
Industry estimates on what is actually needed vary: Tsuneo Takahashi of Natsource Japan Co., a Mitsubishi joint venture., said Japan needs to buy about 300 million tonnes from CDM projects to achieve the reduction target.
Takashi Hongo, the director general of environment finance unit of Japan Bank for International Coorperation, estimates 600-700 million tonnes.
The lack of clarity could put the Japanese government's compliance to Kyoto Protocol in question, Natsource's Takahashi said.
"The government measurements are too lax," said Takahashi.
"It has been never clear about what it wants to do and what it wants the private sector to do, even though the government is really attached to the protocol named after Kyoto."
If the extra credit purchases are imposed on industry, rather than the tax payer, investors need to know, said Masanori Maruo, a utility equity analyst with Deutsche Securities.
"Japan has to buy credit after credit if it wants to be honoured for the protocol named after Kyoto. Investors do not object to costs related to environment protection. They just need clear visions how much investment is needed and by when."
The difference in estimates emerge from the fact Japan's emissions are rising instead of falling, leaving it 14 percent above its UN reduction target last year.
FORCED
The global carbon market is attracting soaring interest from intermediaries including banks and funds like Natsource, as countries appear committed to ever stricter emissions targets.
Japan wants the bulk of its emissions cuts to come from measures such as voluntary industry cuts, promotion of energy conservation and higher operation rates of nuclear power plants, hoping to avoid imposing limits on domestic industry.
Top companies, including Tokyo Electric Power Co.. (TEPCO), Nippon Steel Corp. and trading firm Mitsubishi Corp. have so far bought credits worth about 50 million tonnes per year from 113 CDM projects in China, Honduras and other countries.
TEPCO, which is responsible for about one tenth of Japan's total emission, has secured about 6-7 million tonnes of credits from CDMs for 2008-2012 and it may boost purchase further.
That is driven by a feeling that Japanese is threatened by global warming, said Ikutoshi Matsumura, the senior vice president of top oil refiner Nippon Oil Corp.
"Japan is such a tiny country. We have nothing. So we share a feeling that we need to step up together to survive."
